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Gap (GPS) Updates Strategic Priorities for Old Navy Spin-Off

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The Gap, Inc. (GPS - Free Report) provided updates on its planned split into two stand-alone public companies, new Gap Inc. and Old Navy. The new Gap will house brands, namely Gap, Banana Republic, Athleta, Hill City, Intermix, and Janie and Jack. Meanwhile, Old Navy, which is among the fast-growing apparel brands, is likely to operate under the existing name.

Per sources, Gap’s iconic Old Navy brand expects to double its present brick-and-mortar footprint in North America and focus on smaller markets. As a result, the brand is likely to deliver sales of nearly $10 billion annually. As of Aug 3, 2019, Old Navy had 1,166 North America locations. Old Navy focuses on creating affordable high-quality fashion for the entire family and presently remains a significant growth driver for the company.

Currently, Gap is focused on its growth brands, with more store openings for Athleta, Old Navy and Gap China locations. In addition, the company continues to benefit from the Janie and Jack clothing brand, backed by roughly 140 U.S. locations and a profitable online channel. Sources reveal that Gap plans to expand its Athleta, and Janie and Jack operations outside the United States through franchisees. As of Aug 3, the company had around 521 franchised outlets.

In March this year, Gap acquired the Janie and Jack clothing brand from Gymboree Group Inc. for roughly $35 million. This brand, offering premium and designer children’s clothing, is a valuable addition to Gap’s premium kids and baby brand portfolio. Janie and Jack’s renowned portfolio fully complements Gap’s existing brands.

Industry experts believe that the spin-off will enable the stand-alone companies to better capitalize growth opportunities and cater to the challenging retail space. The transaction, which is expected to close next year, is subjected to certain closing conditions. Management earlier stated that post spin-off, Gap’s shareholders will receive a pro-rata stock distribution and will own shares in Gap and Old Navy equally.

Price Performance and Rank

In the past three months, shares of this leading clothing retailer have gained 5.5% against the industry's 7.4% decline. Currently, Gap carries a Zacks Rank #3 (Hold).

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